Public services in blockchains V: lessons from Ukraine

28 September 2016

Much of Ukraine’s economy remains a legacy of the pre-1989 order. Unlike in the UK, the majority of land, property and factories is still state owned. Recently, governments have attempted to privatise ownership of this property to stoke entrepreneurialism and economic growth.

The best way to do this is through transparent and accessible auctions – which can create the competition to increase revenues for a government in need of financial boosts. Current practices, however, are not as transparent as the Government would like.

A new approach is on the horizon. e-Auction 3.0 is a pilot platform using blockchain — a public ledger capable of recording transactions securely — to sell state land in Ukraine. This opens up auctions (hitherto conducted in villages or regions of Ukraine) to the globe, in a transparent and easy-to-use way. It is a model we believe governments across the world can replicate.

Traditional auctions are conducted on one trading platform, which is open to failure and corruption. Blockchain frees government from this approach by allowing multiple trading platforms to ‘plug in’ to a selling agency (in this case, government). Effectively, blockchain creates the ledgers for these platforms, which are updated as soon as transactions occur. Multiple trading platforms, across the globe, provide a much wider pool of buyers, vastly increasing competition.

This model clearly applies to any government looking to sell assets, as UK Governments have done in recent years. Moreover, the approach can be applied to other areas of government trade. Governments could, for example, reverse the procedure to procure goods from across the globe — with competition reducing the price for the state.

The key lesson for governments is to use a system that is consistent with international regulations. To comply with international know your customer (KYC) and anti-money laundering (AML) regulations, we included banks in the system. Banks also confirm payments and provide money guarantees, providing extra financial security to the trades.

This is a revolutionary approach: it allows private traders across the globe to unite in a blockchain-documented system to transparently trade with government in real time, without any centralised database or system administrator. Any government interested in injecting transparency and competition to government trading has something to gain. To maximise competition, governments should ensure that the system is built to work across national boundaries. Through this, globalisation really can start to work for taxpayers — wherever they are.

Lasha Antadze, Co-Author of Auction 3.0, PM at Innovation and Development Foundation